TNT Refocus Reflects Growing Industry Trend

[TrueBlueTerrier]

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(Source: Datamonitor)trackingThe global economic downturn has hit TNT's Q4 results, especially on the express side which witnessed a plunge in demand for services, primarily affecting its international premium air volumes. Both TNT, and indeed its rivals, are now putting short- and long-term measures in place to cope with slowing demand and profit erosion, while repositioning to respond to underlying market trends.

TNT has witnessed a sharp fall in express demand, with both air and road modes affected, but particularly the premium air segment which has declined drastically. While global demand slowed, the company's recently published fourth quarter results reported only a slight drop in express revenues. However, profits decreased considerably as the drop in premium services weighed heavily on the company's overall profitability. Revenues from premium products in express form a small proportion of the overall volumes but make a major value contribution, thereby causing a decline in operating income. The company's balance sheet was also hit by a reduction in the weight per consignment over the quarter and a consequent decline in the revenue per package.

TNT is now set to focus on strengthening its road network in order to ensure a comprehensive service in domestic and intraregional markets (particularly in the Asian and South American regions), and leverage extra volumes to feed its intercontinental services. The acquisition of LIT Cargo in Chile underlined this goal and the company has now built a road network in South America designed to serve domestic and intra-regionally operating customers.

In the developing express market in China, the company has positioned itself with a new day definite service. In Europe, TNT's potential strategic investment in Royal Mail, which is still in its early stages, could cause a major power shift in this key region. Royal Mail's parcel divisions (General Logistics Systems and Parcelforce) offer scope for economies of scale and exploitation of synergies between the two organizations.

TNT's results were not atypical, with UPS and FedEx also suffering a decline in volumes that led them to refocus. Apart from cost cutting and network rationalization, UPS has responded with the expansion of its service capability in various countries, along with a strategy to offer a domestic express pick-up and delivery service in sixteen countries in Europe, Africa, the Middle East and Latin America. It also continued its investment strategy by opening two new aviation hubs in Shanghai and Shenzhen, with the latter expected to begin service in 2010. UPS will link these hubs to other destinations through its international network.

Meanwhile, DHL has had to implement an "international only strategy" in the US, following the closure of its domestic ground and air hub, which signaled its withdrawal from the country's domestic market. It has also indicated a refocus on international road networks and an enhancing of its domestic B2C capabilities in certain countries, including the UK. FedEx has also adopted a similar approach to its revival in the express industry, investing in new hubs in Mexico and China to offset the decline in US and European volumes.

The express operators foresee a grim outlook for the first quarter of 2009, with recession impacting European, Asian and Middle Eastern economies that were previously considered growth regions. Even the latter are now seemingly affected by the global economic recession and the lower oil price.

The integrators are confronted by a continuing tough environment, with regard to sustaining profits and growth. However, the investments that these companies have made should help to diversify the risks and boost their ability to cope with overall declining international volumes, while consolidating their positions in increasingly difficult circumstances.

[DGP1]

In Europe, TNT's potential strategic investment in Royal Mail, which is still in its early stages, could cause a major power shift in this key region. Royal Mail's parcel divisions (General Logistics Systems and Parcelforce) offer scope for economies of scale and exploitation of synergies between the two organizations.

Who didn't see this coming

[brothermagrew]

Didn't TNT sell off their own Logistics Department?